R&D Tax Credits


The R&D tax credit can help a wide variety of businesses offset and reduce their income tax liability, in addition to providing many other benefits.

Businesses in Indiana can earn a 3% state income tax credit for the increase in their annual research and development expenses, compared to the previous two years. To calculate the credit, the eligible expenses incurred for qualifying R&D activities must be identified and calculated, including wages, supplies, and contract research. The credit must be claimed 25% each year for four years. Accurate records and documentation must be kept to determine eligible expenses.

To determine the tax credit for augmented research activities in Indiana, businesses should complete Schedule IT-20REC. The credit amounts to 15% of the rise in qualified research expenses incurred or paid within the state during the taxable year, above the taxpayer’s base amount up to $1 million, with up to 10% credit for amounts over $1 million.

In Indiana, R&D tax credits are available to companies that engage in qualifying activities to advance knowledge or improve processes, products, or technologies. These must be technological, aid in product development, and involve experimentation. Eligible expenses exclude land, equipment, surveys, customer-specific costs, and government-funded research. Some of the qualifying R&D activities include: Development of new products, Testing and experimentation, Development of prototype, Solving technical problems and the like. Accurate record-keeping is crucial for claiming credits.

Eligible businesses include corporations and pass through entities. Trusts and estates can also claim the credit against their own liabilities. However, beneficiaries of estates or trusts are not eligible except for Grantor Trusts.

R&D Tax Credits in Indiana

Indiana offers a Research Expense Credit designed to stimulate investment in research and development activities within the state. The potential value of this tax credit is calculated by taking the taxpayer’s qualified research expenses for the tax year, subtracting the base period amount, and then multiplying the remainder of up to $1 million by 15%. A credit percentage of up to 10% is applied to any excess of base over $1 million, providing a substantial financial incentive for businesses to expand their R&D activities in Indiana.

What Goes into the Indiana R&D Tax Credit as a Qualified Research Expense?​

The Indiana research and development tax credit allows for businesses to claim a percentage of their qualifying research expenses. 

In order for an expense to qualify it must meet specific research criteria:

  1. Products, services, processes, or software must be new or improved in some way 
  2. Uncertainty must be eliminated as a result of the research 
  3. The research must be technological 
  4. Research must include experimentation processes of some nature

The types of expenses that are applicable to claim under the credit include the following:

Wages paid to employees who are directly involved in the performance of research and development activities within the state of Indiana. This includes payments made to subcontractors involved in the performance of such activities.

Take Advantage of the
R&D Tax Credit with Source Advisors

Most states offer R&D tax credits as well with many of them being more lucrative than the federal credit. At Source Advisors, we can help assess your company’s federal R&D tax credit opportunity and also determine any state R&D tax credit availability. Our team of experienced CPAs, attorneys, engineers, and technology experts helps companies save money and create cash flow with R&D tax credits that can then help drive overall growth.